Big Hair on Campus

January 2014

Did Donald Trump defraud thousands who paid up to $35,000 to learn his real-estate investing skills at the now defunct Trump University, as New York attorney general Eric Schneiderman charges? Or—ahem—is Schneiderman, in cahoots with President Obama, out to get Trump?

Donald J. Trump has 2.43 million followers on Twitter, making him the 670th most followed person in the global Twitterverse. Last fall he was sandwiched there between Lonny Rashid Lynn Jr., better known as the Chicago-born hip-hop artist Common, and Alejandro Fernández, or El Potrillo, the Mexican singer.

The Donald likes to tweet about his many triumphs and to re-tweet exhortations for him to run for president and save the country. On October 29, he re-tweeted a boast from his daughter Ivanka—who has more than 1.5 million followers—that the yet to be completed Trump International Golf Club, in Dubai, was voted by the International Property Awards “the Best Golf Development in the Middle East.” That same day, he revealed that his Virginia winery had been awarded the “coveted” Virginia Double Gold Medal.

One project The Donald isn’t crowing about on Twitter—or anywhere else, for that matter—is the public-relations problem known first as Trump University and then as the Trump Entrepreneur Initiative, his effort to teach the great unwashed (for as much as $35,000 a head) his vaunted investing techniques. If Eric Schneiderman, the New York attorney general, is to be believed, this particular (now defunct) Trump enterprise was nothing short of out-and-out fraud. Touré, a host of The Cycle on MSNBC, appears to agree. He tweeted to The Donald, “Why did you rob all those Trump University students out of their money?”

Schneiderman thinks that’s a good question, and he wants a good answer. Last August the attorney general’s office filed suit against Trump and his associates for more than $40 million in New York State Supreme Court, claiming that between 2005 and 2011 they “intentionally” misled “over 5,000 individuals nationwide,” including some 600 New York State residents, who paid to “participate in live seminars and mentorship programs with the promise of learning Trump’s real estate investing techniques.” Schneiderman asserted that Trump personally made about $5 million from the endeavor—although Trump said he intended to donate any profits to charity. (Now he says that between legal fees and refunds no money is left to do so.)

At a press conference announcing the suit, Schneiderman claimed that “Mr. Trump used his celebrity status and personally appeared in commercials making false promises to convince people to spend tens of thousands of dollars they couldn’t afford for lessons they never got.”

Trump wasted little time in responding, hitting the airwaves to call into question Schneiderman’s character—he’s a “political hack,” Trump told Fox & Friends—and his motivation for filing the suit. Trump claims that Schneiderman cooked up the lawsuit after visiting with President Obama—the target of much of Trump’s political ire (recall Trump’s birther non-bombshell)—in upstate New York. They met on a Thursday and Schneiderman filed the lawsuit that Saturday, leaving Trump incredulous. “It’s a helluva coincidence,” he tells me. “You meet and then you immediately file a lawsuit and the lawsuit is filed not on a Monday or Tuesday but on a Saturday?… I’ve had a lot of litigation. I have never heard of a lawsuit being filed on a Saturday.”

Schneiderman responds, “I assure you I have many more important things to talk to the president about than the fact that we busted this penny-ante fraud… [Trump] seems to be the kind of person who goes to the Super Bowl and thinks the people in the huddle are talking about him.” As to why the suit was filed on a Saturday, Schneiderman says that Trump and his attorneys asked him to hold off until the weekend, allowing Trump to leak in advance his side of the story to the Saturday editions of the New York Post and The Wall Street Journal and “to whip up this strange Web site attacking me.”

Trump says Schneiderman came to him hat in hand for a campaign contribution in 2010, when he was thinking about running for office. On one of the three visits that Trump alleges Schneiderman made, Trump gave him $12,500: “He said, ‘Can you fix me up with some people?’ I set him up with people. Now you can make the case ‘Isn’t that wonderful that there’s somebody who helped him that he’ll screw.’ But you could also say he’s a real disgusting human being.”

Trump elaborated in a recent letter to Graydon Carter, the editor of Vanity Fair: “He wanted to settle and I didn’t… During settlement negotiations, he was asking for campaign contributions. He’s a sleazebag and a crook who is driving business out of New York City.” To Trump’s charges, Schneiderman responds, “The fact that he has a larger megaphone than most fraudsters is what gets all the attention here, so I would expect that he would attempt to distract the court, unsuccessfully…. It is true that he did not support me in the Democratic primary when I ran in 2010, and, after I won the primary, he gave me one contribution, which is the only contribution he has ever given me.”

Schneiderman fought back with an opinion piece in the Daily News, as well as with numerous TV appearances. “Trump has answered with outlandish accusations,” he wrote. “That’s not surprising for a showman who has built a career around bluster and hype. But I am not in the entertainment business; I am in the justice business.” He conceded that Trump could have settled the case—as another for-profit school did for $10 million—“or answered the charges in a dignified manner through his attorney. Instead,” the attorney general continued, “he chose to try the case in the press.”

‘I went to the Wharton School of Finance,” Trump says. “I have a great feeling for education and for knowledge and learning… I love the idea of helping people, because I’ve had a lot of experience with real estate, to put it mildly.”

Trump and his associates Michael Sexton and Jonathan Spitalny formed Trump University as a limited-liability corporation in 2004. The original business plan was to focus on long-distance, Web-based learning, but they would also be “experimenting” with offering “live instructional programs” to paying customers, according to Sexton’s subpoenaed deposition.

The following spring, the New York State Department of Education sent letters to both Trump and Sexton notifying them that Trump University was in violation of state law by calling itself a “university” when “it was not chartered as such” and because it had not been properly “licensed” by the state.

In a series of follow-up conversations and e-mails between Sexton and Joseph Frey, then a state education official, Frey explained that Trump University could avoid the “licensure” provision of the state law if it were to re-incorporate outside of New York State and if it ran no physical seminars in the state. But “Trump University failed to abide by any of these conditions,” the attorney general wrote.

Schneiderman claims the “university” continued to use 40 Wall Street—one of the few buildings in Manhattan that Trump actually owns—as its principal corporate address, including in numerous advertisements. It furthermore conducted “at least fifty live programs in New York between 2006 and 2011.” Schneiderman noted that “Trump University LLC” was finally renamed, on May 20, 2010, “The Trump Entrepreneur Initiative LLC.”

In his deposition Sexton admitted that the failure to comply with the stipulations was “an oversight” and something he and Trump “forgot” about.

Also misleading, according to Schneiderman, were the claims made in Trump’s advertising. In one, published in 2009, Trump looks resplendent in a blue suit while standing in front of one of the buildings that bear his name—but not his ownership—on Manhattan’s West Side. “Learn from Donald Trump’s handpicked experts how you can profit from the largest real-estate liquidation in history,” the ad promises. (He was presumably not referring to the Chapter 11 filings of the three highly leveraged hotel and casino properties he once had a stake in.) The ad pronounced Trump “the most celebrated entrepreneur on earth. He’s earned more in a day than most people do in a lifetime… And now he’s ready to share—with Americans like you—the Trump process for investing in today’s once-in-a-lifetime real estate market.”

This was followed by a quotation from The Donald: “I can turn anyone into a successful real estate investor, including you.”

Schneiderman argues that Trump University’s advertisements, Web site, and promotional materials were just an elaborate ruse. The initial “free seminars,” according to the lawsuit, were “the first step in a bait and switch to induce prospective students to enroll in increasingly expensive seminars starting with the three-day $1495 seminar and ultimately [for] advanced seminars such as the ‘Gold Elite’ program costing $35,000.”

“We’re going to have professors that are absolutely terrific—terrific people, terrific brains, successful, the best,” Trump claimed on videos shown at the seminars. “We’re going to have the best of the best. And honestly, if you do not learn from them, if you do not learn from me … then you’re just not going to make it in terms of the world of success.”

That was good enough for June Harris, of White Plains, New York, who had previously taken an online Trump real-estate investing course and found it useful. After the free June 2009 session at a hotel in Stamford, Connecticut—where participants were told to keep $1,000 in their pockets at all times as “a confidence builder for wealth”—Harris signed up for the three-day seminar, which cost her $747.50. She spent the weekend of June 19 at the seminar, where she was encouraged to call her credit-card company and increase her line of credit. “They said that we should invest in property without ever touching our own assets,” she wrote in a September 2012 affidavit. “The instructor said if we surmounted the fear of losing money then we would actually make money.”

She was then encouraged to sign up for the “Trump Gold” mentorship program—at a cost of $35,000—described as a yearlong group of seminars and private consultations with Trump instructors. When Harris declined, “The agent was very upset and quickly hung up the phone on me,” she wrote in her affidavit.

Bob Guillo, from Manhasset, New York, and his son, Alex, fell hard for the Trump line. After the free seminar and the three-day course costing nearly $1,500—and which he graded as “excellent” in his evaluation—Guillo signed up for the Trump Gold Elite program and paid nearly $35,000. He was told he would be part of a select “in-the-know group” and among “insiders” who would have access to proprietary real-estate deals. “For example,” Guillo wrote in an affidavit, “where Mr. Trump would be involved in building condominiums, we would get first choice at purchasing an apartment and then would be able to immediately sell it at a profit.”

Guillo wrote that at the first day of the Trump Gold Elite program he “began to realize I had been taken” because the information conveyed seemed to be coming from Zillow.com, a real-estate Web site, or from the I.R.S. Web site. In August 2011, Guillo wrote George Sorial, an assistant general counsel in the Trump Organization, to request a refund. But he never got his money back. Instead, “Trump staff promised to set me up with their best mentor,” Guillo wrote. He declined the offer. He just wanted his money back.

Guillo, now 74 years old and a retired legal-document processor, says he attended every one of the seminars his $35,000 bought him and at every one the Trump instructors did the same thing. “They tried to solicit more money from us,” he explains. “I got a picture of myself with a Trump cutout and basically very, very little else.”

Trump is unmoved by the people who have complained. He and his legal advisers set up a Web site, 98percentapproval.com, which contains video testimonials from satisfied customers, as well as more than 10,000 attendee surveys, many of which give Trump top marks. “It’s like Harvard,” Trump tells me. “You know Harvard doesn’t have a 98 percent approval rating.” Alan Garten, an executive vice president of the Trump Organization and litigation counsel, interjects, “When you take into account the fact that the attorney general’s been looking at this case for what, two-plus years, 46 [negative] affidavits is [nothing].”

Trump quickly picks up on Garten’s observation. “Of those 46,” The Donald says, “most of them have signed a letter saying how great it was… They complained that they weren’t given refunds, except they were.”

What about Bob Guillo, who has not received a refund? “I had many conversations with Bob Guillo,” says Sorial. “He could not articulate one thing that was wrong with the course. And I just got the impression that this was a guy who read about this frivolous lawsuit and was saying, ‘Hey, look. I’m going to try and get some money back.’ Especially because he signed up for multiple courses in multiple years, and had multiple, very positive evaluations.”

Schneiderman is not persuaded by such arguments. “All the promotional materials, many of which featured Mr. Trump, made numerous false statements,” he explains. “He never ‘handpicked’ experts to teach people. These people weren’t experts. They weren’t even certified as teachers by the state of New York. They didn’t learn any real-estate secrets from Trump, because he never participated in developing the curriculum.” (Trump says he personally reviewed the résumés of many but not all of the teachers.)

Trump is especially miffed that he is being tarred as a fraud. “I really did this because I thought we could really help a lot of people, and we did help a lot of people.” He is determined to make the attorney general pay politically for his accusations and says his legal response “will blow Schneiderman out of the water.”

Schneiderman responds, “I have no idea how he thinks his strategy is going to work.” He adds, “The lawyers in my office are going to pursue it. I am quite confident we’re going to prevail, and the rest of it is just distraction.”